It has been about a month since the last earnings report for Huntington Bancshares (HBAN - Free Report) . Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Huntington Bancshares due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Huntington Q1 Earnings Miss Estimates, Provisions Up
Huntington reported first-quarter 2020 earnings per share of 3 cents that lagged the Zacks Consensus Estimate of 12 cents. The bottom-line figure also comes in 91% lower than the prior-year quarter reported number.
Results were adversely impacted by higher credit provisioning due to bleak economic conditions. Further, a lower net interest income, along with pressure on margin due to low rates, was a major drag.
However, declines in operating expenses and a higher fee income were tailwinds. Notably, a rise in mortgage banking revenues acted as a driving factor. Further, improvement in loans and deposits was another positive.
The company reported net income of $48 million for the quarter, which slumped 87% year over year.
Revenues Up, Expenses Fall, Loans & Deposits Escalate
Total revenues inched up 1% year over year to $1.16 billion in the first quarter. Further, the top-line figure surpassed the Zacks Consensus Estimate of $1.15 billion.
Net interest income (FTE basis) was $796 million, down 4% from the prior-year quarter. This downside resulted from a lower NIM, partly offset by an increase in average earnings assets. Also, NIM contracted 25 basis points to 3.14%.
Non-interest income climbed 13% year over year to $361 million. This upsurge mainly stemmed from an increase in almost all components of income, partly muted by lower gain on sale of loans and leases and other non-interest income. Notably, mortgage banking income increased significantly.
Non-interest expenses edged down on a year-over-year basis to $652 million. This was chiefly due to lower professional, amortization of intangibles, net occupancy and other costs, mostly offset by elevated personnel costs, outside data processing and other service costs, marketing and equipment expenses.
Efficiency ratio was 55.4%, down from the prior-year quarter’s 55.8%. A decline in ratio indicates a rise in profitability.
As of Mar 31, 2020, average loans and leases at Huntington inched up 1% on a sequential basis to $75.7 billion. Also, average total deposits increased marginally from the prior quarter to $82.7 billion.
Credit Quality Disappoints
Net charge-offs were $117 million or an annualized 0.62% of average total loans in the reported quarter, up from the $71 million or an annualized 0.38% recorded in the prior year. Also, the quarter-end allowance for credit losses surged 85.5% to $1.6 billion.
Provision for credit losses went up significantly on a year-over year basis to $441 million on the coronavirus crisis. In addition, total non-performing assets totaled $586 million as of Mar 31, 2020, up 27.1%.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.47% and 10.81%, respectively, compared with the 9.84% and 11.25% reported in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.52%, down from 7.57% as of Mar 31, 2019.
During the March-end quarter, the company repurchased 7.1 million shares at an average cost of $12.38 for a total cost of $88 million.
Outlook for Second-Quarter 2020
Total revenues are anticipated to decline 4-5% sequentially, as the larger average balance sheet is more than offset by moderate pressure on the organic NIM and the COVID-19 related declines in fee income. Customer activity based fee income lines, items, including deposit service charges, card and payment processing, are all expected to be pressured. Mortgage banking is expected to remain robust, but historically wide secondary marketing spreads are expected to gradually reduce. All combined, the company currently expects fee income to be down about 10% sequentially.
Average commercial loan growth of 4???5% is expected on a sequential basis, reflecting full quarter impact of recent $3.2 billion commercial line draws but excluding $6 billion paycheck protection program (PPP) lending. Also, average consumer loans might remain flat or decline modestly as continued growth in residential mortgage is partially offset by home equity and indirect auto runoff.
Non-interest expenses are expected to increase between 5% and 6% on a sequential basis, driven primarily by the CECL increase in compensation-related expense related to the annual ramp of long-term incentives and annual merit increases, partially offset by expense-reduction actions. On a year-over-year basis, expenses are expected to be lower by 2%.
Net charge-offs are expected to be 35-55 basis points. This is reflective of the ongoing pressure in the oil and gas portfolio as well as broader economic considerations.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -21.84% due to these changes.
At this time, Huntington Bancshares has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.